U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10416
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INFODATA SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
12150 Monument Drive, Suite 400, Fairfax, Virginia 22033
(Address of registrant's principal executive office)
(703) 934-5205
(Registrant's telephone number)
VIRGINIA 16-0954695
(State of Incorporation) (I.R.S. Employer Identification No.)
--------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of May 8, 1997 was
2,317,481.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
INFODATA SYSTEMS INC. AND SUBSIDIARIES
INDEX
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4-5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements
March 31, 1997 and 1996 7
Item 2. Management's Discussion and Analysis 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
PART I--FINANCIAL INFORMATION
ITEM 1
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
---------------------------
Revenues............................................ $2,041 $2,493
Cost of revenues.................................... 1,350 1,668
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Gross profit........................................ 691 825
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Operating expenses:
Research and development............................ 367 57
Selling, general and administrative................. 1,207 645
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1,574 702
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Operating income (loss):............................ (883) 123
Interest income..................................... 25 20
Interest expense.................................... (2) (4)
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Income (loss) before income taxes................... (860) 139
Provision for income taxes.......................... (5) 3
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Net income (loss)................................... $ (855) $ 136
======= =======
Preferred dividends................................. - (30)
Income (loss) applicable to common shares........... $ (855) $ 106
======= =======
Per share data (primary and fully diluted):
Net income (loss) per common share............... $ (.32) $ .06
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Weighted average shares outstanding................. 2,667 1,848
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The accompanying notes are an integral part of these consolidated statements.
3
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
March 31, December 31
1997 1996
---------------------------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 771 $ 1,266
Short term investments......................... 632 947
Accounts receivable, net of allowance of
$80 and $30................................... 1,391 1,522
Other current assets........................... 253 185
-------- --------
Total current assets....................... 3,047 3,920
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Property and equipment, at cost:
Furniture and equipment........................ 2,527 2,373
Less accumulated depreciation and amortization. (1,976) (1,897)
-------- --------
551 476
Goodwill, net....................................... 262 274
Other assets........................................ 141 137
Software development costs, net..................... 74 84
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Total assets........................................ $ 4,075 $ 4,891
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The accompanying notes are an integral part of these consolidated balance
sheets.
4
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
March 31, December 31
1997 1996
---------------------------
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of capital lease obligations....... $ 44 $ 46
Accounts payable................................... 174 327
Accrued expenses................................... 915 823
Deferred revenue................................... 1,088 1,079
Current portion of deferred rent................... 33 33
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Total current liabilities.......................... 2,254 2,308
Capital lease obligations.......................... 23 33
Deferred revenue................................... 75 75
Deferred rent...................................... 11 19
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Total liabilities ................................. 2,363 2,435
Shareholders' equity:
Common stock....................................... 69 68
Additional paid-in capital......................... 9,165 9,055
Accumulated deficit................................ (7,522) (6,667)
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Total shareholders' equity......................... 1,712 2,456
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Total liabilities and shareholders' equity $ 4,075 $ 4,891
The accompanying notes are an integral part of these consolidated balance
sheets.
5
INFODATA SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ (855) $ 136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 79 63
Software amortization...................... 10 11
Goodwill and other intangible amortization. 12 11
Other...................................... -- (4)
Changes in operating assets and liabilities:
Accounts receivable........................ 131 (261)
Other current assets....................... (68) (45)
Other assets............................... (3) --
Accounts payable........................... (176) 395
Accrued expenses........................... 93 58
Deferred revenue........................... 9 144
Deferred rent.............................. (8) (14)
-------- --------
Net cash provided by (used in)
operating activities.................. (776) 494
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........ (132) (25)
Business acquisition............................ -- (12)
Proceeds from maturity of short term investments 314 21
-------- --------
Net cash provided by (used in)
investing activities.................. 182 (16)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations........... (12) (38)
Payments of notes payable....................... -- (2)
Preferred stock dividends....................... -- (59)
Issuance of common stock........................ 111 --
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Net cash provided by (used in)
financing activities................. 99 (99)
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Net increase in cash and cash equivalents...... (495) 379
Cash and cash equivalents at beginning of
period........................................ 1,266 1,476
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Cash and cash equivalents at end of period..... $ 771 $ 1,855
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The accompanying notes are an integral part of these consolidated statements.
6
INFODATA SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1997, are not necessarily indicative of the results for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1996.
NOTE B--NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
changes the reporting requirements for earnings per share (EPS) for publicly
traded companies by replacing primary EPS with basic EPS and changing the
disclosures associated with this change. The Company is required to adopt this
standard for its December 31, 1997 year-end and is currently evaluating the
impact of this standard.
NOTE C--LINE OF CREDIT
The Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables at a per
annum rate equal to the sum of 2.9% plus the 30-day commercial paper rate.
Currently, this per annum rate approximates prime. The facility expires in
November 1997 and the Company has made no borrowings under this line of
credit.
NOTE D--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $2,000 and $4,000 for the periods ended
March 31, 1997 and 1996, respectively. No cash was paid for income taxes in
either period.
NOTE E--RISKS AND UNCERTAINTIES
The Company is developing the Virtual File CabinetTM(VFCTM), a major family of
new proprietary software products. In doing so, the Company has incurred
significant costs related to this product and will continue to incur these
costs in the future. Although management expects to generate revenues from
this product in the future, no sales were made in the first quarter. Also,
there can be no assurance as to the amount of VFC revenues in the future.
Management has identified potential contingency plans to mitigate the
Company's future liquidity risk and believes that such plans would be
effective. Furthermore, the Board of Directors and management have initiated
discussions with various sources regarding additional financing to support the
VFC business.
In 1996, a customer asserted that the Company did not perform on a contract
and sought a $90,000 refund. The Company vigorously denies the assertion and
management believes that based upon the current facts it is not probable that
a loss will incur. Accordingly, no accrual has been made for this claim at
March 31, 1997.
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended March 31, 1997 totaled $2,041,000, a
decrease of $452,000 (18%) below the three month period ended March 31, 1996.
The Company's revenues have been attributable to three sources:
INQUIRE-related services, products, and maintenance; services and products
provided to the intelligence community; and other client/server products and
services.
INQUIRE-related revenues increased by 6% during the quarter compared to the
corresponding quarter last year. Sales of WebINQUIRETM as well as other
INQUIRE-related product upgrades offset the decline in INQUIRE maintenance
revenues. The Company continues to project that INQUIRE-related revenues will
decline over time.
Client/server product and service revenues decreased by 57% below the
corresponding period last year. Without the effect of a large one-time
client/server product sale in the first quarter of 1996, the decline would
have been 36%, reflecting the impact of a shift of sales and engineering
resources from services to VFC. The Company expects this condition will
continue in the second quarter but that services revenues will increase in the
third quarter. Additional business development and promotional resources have
been applied to strengthen future prospects for this portion of the business.
Intelligence-related revenues, which are now primarily derived from
client/server services, increased 17%. The Company has launched a number of
new marketing initiatives directed towards this segment. The Company believes
that many intelligence community information systems needs can be met with a
combination of the Company's document systems products and services.
GROSS PROFIT
Gross profit decreased to $691,000 (34% of revenues) for the three months
ended March 31, 1997, from $825,000 (33% of revenues) for the same period
ended March 31, 1996. The decline in gross profit for the first quarter of
1997 is due primarily to the decrease in revenues mentioned above.
RESEARCH AND DEVELOPMENT EXPENSE
During the first quarter of 1997, the Company expanded the resources dedicated
to the development of VFC. This resulted in research and development expense
of $367,000 for the three months ended March 31, 1997, reflecting an increase
of $310,000 over the three months ended March 31, 1996. The Company expects
that research and development expense is likely to increase for the remainder
of 1997 and beyond as new products and product enhancements in the VFC family
are developed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1,207,000 for the
three months ending March 31, 1997 from $645,000 for the same period ended
March 31, 1996. The increase for this period is due almost entirely to an
increase in sales and marketing staff and marketing expenses associated with
the launch of VFC. Sales and marketing headcount tripled in the first quarter
of 1997 compared to the first quarter of 1996, as did promotional expenses.
The Company expects sales and marketing expenses to increase for the remainder
of 1997 as various releases of VFC are launched and new sales channels, such
as Value Added Resellers, are built.
8
INTEREST INCOME AND EXPENSE
Interest income was $25,000 for the three months ended March 31, 1997, and
$20,000 for the same period ended March 31, 1996. The increase was primarily
due to a higher average balance of cash and cash equivalents during the three
months ended March 31, 1997 over the same period in 1996. The Company invested
only in short-term, highly liquid money market instruments. Interest expense
decreased from $4,000 to $2,000 for the three months ended March 31, 1996 and
1997, respectively. The expense is primarily related to certain capital
equipment leases which expire through 1998.
NET INCOME
As a result of the above, the Company reported a net loss of $855,000 for the
three months ended March 31, 1997 as compared to net income of $136,000 for
the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $1,403,000 in cash and short-term
investments compared to $2,213,000 as of December 31, 1996.
At March 31, 1997, the Company had working capital of $793,000, as compared to
working capital of $1,612,000 at December 31, 1996. The decrease in working
capital is due primarily to the first quarter's net loss.
Net cash flow from operating activities for the three months ended March 31,
1997 was not sufficient to fund the operations of the business; however, based
upon the expectation of future revenues from the Company's existing products
and services, management believes that available and projected resources will
be sufficient to meet its working capital requirements for the foreseeable
future. Management has identified potential contingency plans to mitigate the
Company's future liquidity risk and believes that such plans would be
effective. Furthermore, the Board of Directors and management have initiated
discussions with various sources regarding additional financing to support the
VFC business (see Note E to the Condensed Consolidated Financial Statements
contained elsewhere in this report).
The Company maintains a line of credit with Merrill Lynch Business Financial
Services, Inc. for up to $1,000,000 based upon eligible receivables at a per
annum rate equal to the sum of 2.9% plus the 30-day commercial paper rate.
Currently, this per annum rate approximates prime. The facility expires in
November 1997 and the Company has made no borrowings under this line of credit
FORWARD-LOOKING STATEMENTS CONTAINED IN THE FORM 10-QSB RELATING TO
PRODUCT DEVELOPMENT AND REVENUE AND THE ADEQUACY OF WORKING CAPITAL
ARE BASED ON CURRENT EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND
RISKS ASSOCIATED WITH NEW PRODUCTS INCLUDING, BUT NOT LIMITED TO,
MARKET CONDITIONS, SUCCESSFUL PRODUCT DEVELOPMENT AND ACCEPTANCE,
THE INTRODUCTION OF COMPETITIVE PRODUCTS, ECONOMIC CONDITIONS, AND
THE TIMING OF ORDERS FOR PRODUCTS. THE COMPANY'S ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM CURRENT EXPECTATIONS. READERS ARE CAUTIONED
NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY
DISCLAIMS ANY INTENT OR OBLIGATION TO UP-DATE PUBLICLY THESE FORWARD
-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. Document
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27 Financial Data Schedule
(b) REPORTS ON FORM 8K. No reports on Form 8-K were filed during the three
months ended March 31, 1997.
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFODATA SYSTEMS INC.
BY:/s/HARRY KAPLOWITZ
Date: May 15, 1997 ----------------------
Harry Kaplowitz
President
BY:/s/CHRIS DETTMAR
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Chris Dettmar
Chief Financial Officer
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